can I 1031 Exchange owner/renter property?

Buying & Selling Real Estate
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can I 1031 Exchange owner/renter property?

Gayle Eisner
Investor · Monterey, CA · Member since 2014 · 174 posts · 55 votes

Hi

My question is: it possible to 1031 exchange my home that has a downstairs rental & my home upstairs and defer the taxes? And, also can I claim the $250k exclusion since I live there as well? Would like to sell my home, but Im in CA and I will get beat down by taxes & am looking for ways to defer. Thanks kindly! Gayle

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Bill ExeterBusiness Member
1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
5y

Hi @Gayle Eisner, 

I assume that your home is a SFR. We refer to this as a split use property and you would qualify for both the Section 121 Exclusion ($250,000) as long as you can say that you have owned and lived in the property as your primary residence for at least 2 out of the last 5 years and a 1031 Exchange as long as you have rented it long enough to document intent to rent (probably 1 year - or more - straddling two income tax years - or more).

Generally, your tax advisor will allocate the sale price, taxable gain, etc., between your primary residence usage and your rental property usage on a prorata basis using square footage. The amount of taxable gain allocated to your primary residence portion would be tax free up to $250,000 and the rest would be taxable.  The amount of taxable gain allocated to your rental property portion would be tax deferred if you structured a 1031 Exchange. 

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  • Bill ExeterBusiness Member
    1031 Exchange Qualified Intermediary · San Diego, CA · Member since 2008 · 1k+ posts · 1k+ votes
    5y

    Hi @Gayle Eisner, 

    I assume that your home is a SFR. We refer to this as a split use property and you would qualify for both the Section 121 Exclusion ($250,000) as long as you can say that you have owned and lived in the property as your primary residence for at least 2 out of the last 5 years and a 1031 Exchange as long as you have rented it long enough to document intent to rent (probably 1 year - or more - straddling two income tax years - or more).

    Generally, your tax advisor will allocate the sale price, taxable gain, etc., between your primary residence usage and your rental property usage on a prorata basis using square footage. The amount of taxable gain allocated to your primary residence portion would be tax free up to $250,000 and the rest would be taxable.  The amount of taxable gain allocated to your rental property portion would be tax deferred if you structured a 1031 Exchange. 

    Exeter 1031 Exchange Services, LLC and Exeter Trust Company4.726 Reviews
    WebsiteView Page
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  • Gayle Eisner
    OP
    Investor · Monterey, CA · Member since 2014 · 174 posts · 55 votes
    5y

    Very helpful, thank you

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  • David M.
    Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
    5y

    @Gayle Eisner

    To echo's Bill post, yes the portion of your home allocated as a rental can be 1031.  It will be same as how your deductions on SchE are apportioned.

    However, I think the catch will be what are you going to 1031 it for?  You need to buy another property that will be somehow for investment.

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  • Carlos Ptriawan
    Member since 2019 · 7k+ posts · 4k+ votes
    5y

    From my local REI you could 1031/Sec 121 too when the profit exceeded 500k/married. Someone has done it that way.

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